When Gas Hits '$20 Per Gallon'

For Christopher Steiner, Bad News Is Good News

Posted by James B. Arndorfer on 10.05.09 @ 03:40 PM

Given all that's happened since, it's easy to forget how the Gas Price Spike of 2008 shook the economy and everyday life in the U.S.

A refresher:

Americans cut back their driving by billions of miles.
Convenience stores and casual-dining chains took a hit.
SUV plants shut down.
Hybrid cars became bestsellers.

Four-dollar gas swiftly made a profound impact. In "$20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better," Christopher Steiner explains why this could be just a teaser of bigger changes to come.

Oil prices are only going to rise, argues Mr. Steiner, who was trained as a civil engineer and is now a reporter for Forbes. The emergence of a global middle class is driving demand for oil even as remaining supply becomes more expensive to extract. And because oil byproducts can be found in household goods ranging from shampoos to toys -- only 40% of the oil we import goes into our fuel tanks -- virtually no aspect of our lives will be untouched by the end of cheap oil.

"Predicting gasoline's price, during the short term, is a game of chance. Long term, however, there is only one sane prediction for gasoline prices: up," Mr. Steiner writes. "Our homes, our cars, our jobs, our vacations -- throughout they will all change, step by step, with the price at the pump."

Mr. Steiner explores these changes with chapters pegged to the price at the pump: $6, $8, $10, etc. (He doesn't make predictions on timing, though he says $10 gas is a "number we almost definitely will see within the next 10 years.")

The future, as he sees it:

At $6 per gallon, people will ditch their SUVs, diesel will become more popular, waistlines will shrink as people drive less, and kids' sports leagues will travel less.

At $8, a major shakeout will ravage the airline industry. Air travel will be vastly more expensive. As a result, families will be more likely to concentrate in one region, college-bound teenagers will be more likely to stay near home and Las Vegas will shrivel.

At $10, electric car sales will be ascendant. Fewer people will fire up snowmobiles and jet skis and motorboats. Plastic shopping bags will disappear and new, organic-based plastics will gain favor.

At $12, the exurbs will lose people as driving becomes more expensive and houses become more expensive to cool or heat. Cities, meanwhile, over decades, will "regroup, renew and grow denser" –- and be served by subways.

At $14, big-box retailers will find their economics under strain. It will no longer be cheap to ship goods from China. Logistical networks built on cheap gas will be more costly to manage. Domestic manufacturing will enjoy a renaissance. The gross mileage of paved roads will shrink due to the cost of asphalt. And we'll look for non-oil-based materials for carpets and other housing materials.

At $16, our food-delivery infrastructure will be transformed: Sushi will be prohibitively expensive in most parts of the country and we'll see a return of locally grown produce.

At $18, a high-speed rail network will connect our cities.

At $20, our energy infrastructure will be transformed. In Mr. Steiner's words: "Hydro Aperitif, wind appetizer, nuclear entrée -- the rest is garnish."

As they say on the Sunday talk shows, it remains to be seen whether Mr. Steiner's predictions will come to pass. But some companies are taking the specter of rising fuel prices seriously: The author looks to UPS' electric trucks and Boeing's fuel-efficient, relatively low-maintenance 787 as examples.

But if Mr. Steiner is on target, it's difficult to see how the incremental impact of rising gas prices -- regardless of whether they hit $20 -- won't affect the products, supply chains and customers of most markets. No doubt, these challenges will prove insurmountable for some. But as Mr. Steiner notes, "giant businesses will rise as entrepreneurs' intrepid minds elegantly solve our society's mounting challenges as gasoline prices inevitably rise."

You can read excerpts of "$20 Per Gallon" here.

~ ~ ~
James Arndorfer, a former Ad Age reporter, now works for MillerCoors.

4 Comments

By John | Bloomington, IN October 6, 2009 10:44:59 am:

I agree that the effects of high prices will spawn positive change in the way we consume our resources. I don't think it will take anything past the $8 benchmark however. 2008 saw the highest strain at $4 -$4.50, and Hybrids became best sellers, and airlines collapsed. Double those prices, and you'll see a massive shift. If it gets to $20 it will be too late for all of us.

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By EMPSKHC | Waukesha October 6, 2009 11:34:31 am:

Having gone through his argument before I think he is often off base and takes no real consideration for past history and innovation. If and when Americans are fed up with the cost of fuel we will use newer technologies to overcome it. Airlines will not surrender wholly to the cost of fuel, once it's painful enough they will demand more effective jets give into regional airports and technology to overcome it. Places like Las Vegas are ripe for mass transit and the plans have been in place for years, the costs just were not justifiable. When it hurts enough they will build it to survive.

Your article like his book has some obvious biases that creep in as well. such as your mistaken comment that SUV plants closed where in truth all automotive plants felt closures and layoffs. As recently as the cash for clunkers the numbers proved trucks and SUV's sales won out. Although reported by model to make it look as if smaller cars did but look at the top 30 models sold and add the like styles together and trucks won the cash for clunkers trade in not economy cars.

No matter how much city loving pundits may want a completely urban family with 1 kid most Americans don't live that way. We don't buy homes near our jobs we buy them where we fit in and where we can afford them and then get to work as best we can. Jobs change, people move around, most people will sacrifice long commutes to not have to move and end up living in one region while working in another.

If we built mass transit up like the Japanese, kept them on time and clean, and added all the amenities as they do I for one would love a larger and consistent transit system but would still find myself living as far as possible from my job as I can tolerate to be in more open spaces and around people with more traditional family values.

Further, innovators have always found a way, perhaps some of these predictions will happen but Americans value freedom and most despise the control that city life and mass transit rely on.

We already have the technology and have for some time to do away with fossil fuels and despite Mr. Gore's bleeping we know we have ample fossil fuels if we decide to tap them to last us another 150 years. I hope we do not, I'd rather see newer cleaner technologies. As for me and many like me you can pry my car out of my hands when I die, I'm not a sheep or a cow and I don't need to be herded or managed by others whose opinions are pretended to be facts with an underlying desire to control and lord over others.

Let those who like city life, stench, crime, noise, and subways have it and let those who enjoy suburban or rural life and nature alone.

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By howie@skypulsemedia | Los Angeles, CA October 6, 2009 12:58:05 pm:

This is the most ridiculous scenario I have ever seen. When gas hits just $8 per gallon it will make all sorts of other means of transportation so much cheaper that the demand reduction will prevent the price from going up. On top of this he doesn't even cover consumer goods! Everything made of plastic uses Oil!!!!!!

So in reality we will get off oil eventually. And it will happen because Japan and Germany have no oil companies lobbying the status quo like the US. They have been working on electric and hydrogen for years as a matter of national strategic importance and they own our car industry. Shell can convert all their stations to hydrogen within a year. The EU is building 15,000 hydrogen fueling stations as we speak. Brazil uses Natural Gas for cars not oil! So the conversion to electric, natural gas, public transport, or hydrogen would be a bit painful but can be done in a few years time. The scenario presented will never happen. Just another author trying to make a buck scaring people.

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By dunndavid | GARLAND, TX October 8, 2009 09:55:16 am:

Yet another zero growther spinning ridiculous forecasts. Yes there is going to be some increased demand for oil particularly in the 3rd world, however, have you noticed all of the new oil production coming on line? Russia was just recently in a "permanent output decline." That's no longer the case now that the Russian government has changed the rules to make production more attractive. We've had some truly huge new oil finds in the Gulf of Mexico, Brazil and Australia. Yep, that's what happens when the price gets up as high as it has been. There's more oil yet to come from North Dakota, Alberta Tar Sands and Western US oil shale just to cite a few new sources. The true green solution is mostly to do what we are doing just do it cleaner. Coal plants today produce 2% the pollution they did 40 years, a trend that will continue. When was the last major oil spill in the first world? In the end economics and reality will prevail over pipe dreams and pseudo-science.

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